Costas Milas's picture
Affiliation: 
University of Liverpool
Credentials: 
Professor of Economics

Voting history

The Eurozone COVID-19 Crisis: EU Policy Options

Question 2: What is the best mechanism to pay for economic support provided by and to EU member states to combat the COVID-19 crisis?

Answer:
Joint borrowing by member states (e.g. Coronabonds)
Confidence level:
Confident
Comment:
This is a genuine emergency. If there was ever an argument in favour of solidarity, now is the right time to proceed with coronabonds. That said, I also have some sympathy for those Eurozone members that object to the idea. If they cannot agree on joint borrowing, can, at least, member states consider issuing GDP-linked bonds? This will give everybody the chance to pay back more when they can afford it and pay back less when they cannot. Countries like Greece or Italy that experienced lower average growth and higher growth volatility (since the launch of the Euro) will face higher GDP-linked borrowing costs than Germany. Nevertheless, countries like Germany or the Netherlands should also benefit from issuing these types of bonds. No country is immune to the coronavirus-related recession. Why not put in place the insurance mechanism on offer by GDP-linked bonds?

Question 1: What is the total size of funding that you would advocate at the EU level in support of its members to weather the COVID-19 crisis this year?

 

 

Answer:
5-10% of GDP
Confidence level:
Confident
Comment:
It is likely that we will face a U-shaped recession or, in case there is a second wave of infections, a W-shaped one. The W-shaped scenario appears likely as (some) Eurozone countries appear keen to relax restrictions (too) fast. Consequently, a support around 10% of GDP looks appropriate. Needless to say, if things turn out worse, support can increase further.

Covid-19: Economic Policy Response

Question 3: Which would be the maximal public debt you would be willing to tolerate if used effectively (as in your answers to 1 and 2 above) to support an economic recovery?

Answer:
No opinion
Confidence level:
Confident
Comment:
I wouldn't be comfortable to specify a 'debt ceiling'. The main point here is to make sure that enough is done to save lives, support the most vulnerable and those that will lose their jobs, for instance. The hope is that the shock will only be temporary so that debt will not have to climb wildly...

Question 2: Which of the following would have the second greatest impact in mitigating the economic effects of the coronavirus economic crisis in the UK?

Answer:
Government credit support for businesses
Confidence level:
Confident

Question 1: Which of the following would have the greatest impact in mitigating the economic effects of the coronavirus economic crisis?

Answer:
Broad cash transfers and/or tax cuts
Confidence level:
Confident
Comment:
Government spending. This is likely to be more effective than tax cuts in stimulating the economy in the short run. Co-ordination is important, as echoed by the head of the IMF, because countries trade with each other. If one does “enough” to restore its supply chain and demand but others don’t, we will all still be stuck with the problems in supply and demand that are driving the economy down. For instance, governments can support those who have lost their jobs or are quarantined. This is arguably more pressing in the UK, where unemployment benefits are much lower as a percentage of previous income than in the OECD average. Indeed, unemployment benefits account for 34% of previous income in the UK for the first 2 months as opposed to 64% for the OECD average (https://data.oecd.org/benwage/benefits-in-unemployment-share-of-previous-income.htm). Another good move would be to increase wages for those on the front line, such as nurses, whose starting salaries took a hit in real terms after the last financial crisis (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/819464/NHSPRB_2019_Report_Web_Accessible__1_.pdf).

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